Inflation makes debt cheaper, one economist explains, which benefits asset holders like home owners.
The government’s inflation numbers confirmed that the price of literally everything has gone up. But an economist said that there’s one group who actually may have benefitted from rising costs.
Inflation may be at a 41-year high of 9.1% in June, thanks to rising gas and food prices, but asset holders like homeowners who have locked in a fixed-rate mortgage may actually benefit from home price appreciation, Justin Wolfers, an economist at the University of Michigan, tweeted: Consider a homeowner who locked in a 30-year fixed-rate mortgage at 3%. While the prices of their car, gas, electricity, and other expenses go up, that homeowner will also see their home value rise with inflation. Yet their mortgage rate remains the same as it is not inflation adjusted, which means they’re still paying the same rate pre-inflation.So when inflation rises by 9.1%, the home you own is probably worth more in value too, but you still owe the same amount you did before prices rose.
“What’s happening is they’re saying to themselves, ‘Oh, I just got that $100,000 because I’m a genius investor who was smart enough to buy housing’,” Wolfers said, “but the reality is, [they’re] not a genius — house prices rose because all prices rose.”
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